Returns to scale, markup and productivity in Japan

Saturday, 6 April 2013: 9:10 AM
Sangho Kim, Ph.D. , College of International Management, Ritsumeikan Asia Pacific University, Beppu, Japan
This study eliminates the effects of markup, returns to scale, and capital utilization from the Solow residual for Japanese manufacturing industry to derive an alternative measure for productivity. Empirical results show that markup generates significant countercyclical bias in the measured Solow residual, and that the adjusted Solow residual is much greater than the original residual. The Granger causality test reveals that some demand-side variables Granger-cause both the original and adjusted Solow residual. The results raise questions as to whether the presumption that the Solow residual with variable capital utilization represents true technology shocks because of its invariability to demand shocks.